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Real Estate News

This Thanksgiving we look at how recent buyers are choosing their homes, and how their friends and family can influence their decision. While we don’t all get to see our families every day, for many home buyers having the option to do so can impact the home they purchase. Based on data from the recently released 2018 Profile of Home Buyers and Sellers, we can see how multi-generation homes are becoming more common and the importance of living close to friends and family.

This year 12 percent of all buyers purchased a multi-generational home, and multi-generational buyers were typically 51 years old. Eighty-three percent of the multi-generational homes purchased were single-family homes.

Multi-generational homes were typically 2,070 square feet and were purchased for $264,100. Buyers of multi-generational homes typically expected to live in their home for 20 years. Forty-seven percent of buyers owned their previous home.

Thirty-nine percent of buyers of multi-generational homes had children under the age of 18 living in the home.

Among all multi-generational buyers, the desire to own a home of their own was the primary reason for purchasing (29 percent). The majority of multi-generational buyers were married couples (63 percent), and single females (19 percent).

The main reasons for purchasing a multi-generational home were for to care for aging family members (44 percent), and children or relatives over 18 moving back into the house/never left home (37 percent).

Ten percent of buyers of multi-generational homes purchased their home to be closer to friends and family. Single females (12 percent) and married couples (nine percent) purchased their homes to be close to friends and family.

The convenience to friends and family for single females (47 percent), married couples (38 percent), and unmarried couples (35 percent) was an influencing factor of their neighborhood choice.

After a year of anticipation, Amazon decided to split its new headquarters between Arlington County, VA and Long Island City, NY. Since Amazon picked not one but two locations for its second home, these two areas are expected to equally share the anticipated 50,000 well-paid jobs Amazon expects to add in the next 10 years. Can these areas accommodate the newcomers?

In the last 20 years, the Washington, DC metro area and New York City have created about 50,000 new jobs on average every year. Amazon expects to add 2,500 new jobs in each of these two areas annually during the next 10 years. However, in regional economics, whenever a new job is created, additional jobs may also be created via increased demand for local goods and services. This increase in jobs, over and above the new hires by Amazon, is referred to as the multiplier effect. While the multiplier varies by industry and area of the country, a back-of-the-envelope estimate is that the multiplier impact is somewhere between 2 and 4[1]. In other words, each additional hire by Amazon can be expected to add 2 to 4 additional jobs to the local economy.

Assuming the size of the multiplier effect is between 2 and 4 additional jobs for each job that Amazon creates, then 7,500 to 12,500[2] new jobs are expected to be added in each of these two markets every year. Thus, for the next 10 years, Amazon will boost employment every year about 17 to 28 percent in the Washington, DC area and 15 to 25 percent in New York City.

But in recent years, housing production has not kept up with population and employment growth pushing up home prices. New York City’s population hit a record high of 8.6 million in 2017 due to growth of 5.2 percent since 2010. Population in the Washington, DC metro area grew about 11 percent between 2010 and 2017, compared to 8 percent on average for the 20 largest metro areas. Moreover, vacancy rates are low in both areas (6 percent in the Washington, DC metro area and 10 percent in the New York metro area) compared to the national level (13 percent) as a result of housing underproduction. Thus, an additional 25,000 jobs, plus additional jobs of 50,000 to 100,000 due to the multiplier impact, in each of these two areas will add new challenges in both places.

Housing production in Washington, DC metro area

Specifically, in the last three years, permits for 42,000 single-family and 33,500 multifamily units were issued in the Washington, DC metro area. Historically, about 56,000 single-family unit permits are issued on average in a three-year timeframe. Thus, in recent years, single-family construction has been 28 percent below the historical average.

Let’s now compare employment growth with housing production. Recently[3], about 55,300 jobs on average have been added in the metro area every year. However, permits for about 25,300 total units, 13,400 single-family and 11,900 multifamily units, were issued on average each year. If the size of the multiplier effect is between 2 and 4 additional jobs for every Amazon job, this means that 7,500 to 12,500 new jobs will be actually added each year. We estimate that permits for an additional 1,800 to 3,000 single-family and 1,600 to 2,700 multifamily units will be needed each year for the next 10 years in order to keep the same ratio of employment growth to housing production in the Washington, DC metro area.

Housing production in New York City

In New York City, since 98 percent of housing units are multifamily units, we see that permits for 1,520 single-family and 93,410 multifamily units were issued in the last three years[4]. Comparing recent[5] employment growth with housing production, about 100,000 jobs on average were created every year while permits for 31,600 total units (500 single-family and 31,100 multifamily units) were issued each year. If the size of the multiplier effect is between 2 and 4 additional jobs for every Amazon job, this means that these 7,500 to 12,500 new jobs will require an additional 40 to 60 single-family and 2,300 to 3,900 multifamily units every year for the next 10 years in order to keep the same ratio of employment growth to housing production in New York City.

If home production does not rise sufficiently then home prices will be pressured to increase at a stronger pace in both the Washington, DC metro area and New York City. Additionally an influx of high-earning employees is expected to increase home prices even more. As Amazon mentioned, these additional 25,000 employees will typically earn more than $150,000 per year. By comparison, the median household income was nearly $100,000 and $60,000 in 2017 in the Washington, DC metro area and New York City, respectively. The increase in high-income households will likely make it more difficult for both low- and middle-income households to find homes they can afford.

Taking a closer look at the housing market in Seattle, where the first Amazon headquarter is located, we see that home prices rose 27 percent in the last 10 years. While many factors affect home prices, no doubt the rapid growth of Amazon has been a significant influence. By comparison, home prices declined 2 percent in the Washington, DC metro area while prices dropped 10 percent in the New York metro area in the same period. Have you wondered what would be the median home price today if Seattle’s Amazon experience was replicated in these two areas 10 years ago? The value of a typical home in Washington, DC would today be $550,000 instead of $430,000 while in the New York metro area buyers would see a median price of $600,000 instead of $430,000.

How the impact of Amazon’s expansion into Washington, DC and New York City affects local housing markets will be worth watching in the years ahead.

[1] According to Enrico Moretti, highly skilled sectors such as technology have the highest multiplier effect with five non-tradable jobs for each technology job.

Moretti, Enrico. The New Geography Of Jobs.

However, under low unemployment rate conditions, we believe that the multiplier effect will be smaller. Both the Washington, DC metro area and New York metro area have an unemployment rate below 4 percent. Areas with an unemployment rate below 4 percent are considered to be under full employment.

[2] 2,500 Amazon jobs are expected to be added every year in each marketfor the next 10 years. Due to the multiplier effect, 5,000 to 10,000 additional service jobs (skilled and unskilled) will be created in each area.

The workforce is moving to less affordable areas.

– In the last 12 months, more than 1.7 million LinkedIn members who lived in the 20 largest metropolitan areas moved from a more affordable place to a less affordable place.

– Denver, San Francisco and Seattle were the top destinations for LinkedIn members.

Although housing affordability is still weakening in many local areas, particularly in the West, as a result of the ongoing supply and demand imbalances, a NAR analysis shows that many workers are actually moving to less affordable areas such as San Francisco and Seattle. According to LinkedIn migration data[1], more than 1.7 million LinkedIn members[2] moved to a less affordable area in the last 12 months. In 13 of the largest 20 areas, a majority of the workforce moved from a less expensive place to a more expensive place.

For instance, the San Francisco area was the most popular destination for workers moving from Detroit. More than 36,000 LinkedIn members from Detroit moved to the San Francisco area in the last 12 months. Based on the REALTORS® Affordability Distribution Curve and Score (RADCS), the affordability score for Detroit was 0.95 in September 2018 while the affordability score for the San Francisco area was 0.48. But what does this mean? The higher the score, the more affordable the area is. For example, a household earning $100,000 in Detroit can afford to buy 72% of homes currently listed for sale while the same household can afford to buy only 8% of homes for sale in San Francisco area.

San Francisco was also the top destination for workers from Philadelphia. Although Philadelphia is more affordable than San Francisco, nearly 27,000 LinkedIn members moved from Philadelphia to San Francisco in the last 12 months. The visualization below allows you to compare the affordability of the area of origin with the affordability of the destination area. Among the 20 largest areas, see in which areas workers decided to move to a less affordable place. Please bear in mind that the higher the score, the more affordable the area is.

While people in general are moving less these days, we also see that fewer people move for an employment-related reason. However, due to a strong economy, it seems that people get better jobs and decide to move to the most attractive areas across the United States. The good news is that new construction is increasing even in areas with serious housing supply issues. For example, the three-year issuance of single-family permits increased 2 percent in the San Francisco metro area. Based on the NAR Housing Shortage Tracker, when we compare permit issuance with employment growth, we see that in November 2018 a single-family permit was issued for every 12 new jobs compared to 15 jobs in November 2017.